When you file bankruptcy under any Chapter of Bankruptcy Code, any action taken by a creditor, collection agency or any government entity can be stopped with the help of automatic stay. It is an injunction against any action taken by the aforesaid entities. It helps debtor and also protects their property under certain circumstances. In case of Chapter 13 bankruptcy, even co debtors are protected.
The automatic stay prevents the following actions
- Collection calls
- Foreclosure sales
- Filing lawsuit against you
- Wage garnishment etc.
How long does automatic stay remain?
Automatic stay remains till the time the judge doesn’t lift the stay at the creditor’s request. It is valid till the time a debtor doesn’t get a discharge.
In Chapter 7 bankruptcy, the automatic stay may prevent foreclosure from taking place on a debt that is secured by real estate. However, the stay gets lifted and the creditor is allowed to proceed when debts are discharged. In this case, it is also assumed that there is no “non exempt equity” left in the property.
In case of Chapter 13, the automatic stay remains valid through the entire period of the Chapter 13 plan.
What happens if the automatic stay is violated?
The court takes several weeks to send notices to the creditors. During this period if the creditors file lawsuit against you, it is treated as null and void.
How does automatic stay help you in the following?
If you are on the verge of facing foreclosure, automatic stay can delay the foreclosure proceedings temporarily. However, sooner or later, the creditor can proceed with the foreclosure process. In case you intend to retain the house, filing Chapter 13 bankruptcy is a better option as compared to Chapter 7 bankruptcy.
In the event, you are being evicted from your home; automatic stay can help you to some extent. However as per the new federal bankruptcy laws, the landlord can proceed with eviction. In case an eviction order was already pending against you and you file bankruptcy, the automatic stay cannot prevent the eviction from taking place.
- Utility disconnection
If you have fallen behind on payments and the service provider is threatening to disconnect gas, electric and water connections, automatic stay can stop this for a period of 20 days.
- Wage garnishment
Automatic stay can prevent wage garnishment. As per norms, not more than 25% of your salary can be used for satisfying court judgments.